Sun is a software company, new top shareholder says

Southeastern has been increasing its stake in Sun this year, and on Wednesday it said it had changed its ownership status in the company in a way that allows it to take a more active hand in its management.

The investment company that announced Wednesday it has taken a 21 percent stake in Sun Microsystems believes the market doesn't get one important thing about the workstation and server vendor: It's a software company.

At least, that's what Staley Cates, president of Southeastern Asset Management, told investors last June, after his company acquired 10 percent of Sun's stock.

"Sun Microsystems is kind of interesting because it's progressively less of a server company and more of a software company; it's more about Solaris and Java," Cates said at a shareholder meeting for the Longleaf Partner Funds that his company manages. "And that's kind of a change that we don’t think the market's on to at all."

Although Sun still generates the vast majority of its revenue from server and workstation sales, CEO Jonathan Schwartz may now be paying special attention to Cates' message.

Southeastern has been increasing its stake in Sun this year, and on Wednesday it said it had changed its ownership status in the company in a way that allows it to take a more active hand in its management, according to a filing with the U.S. Securities and Exchange Commission. It also said it has been meeting with Sun's management to talk about ways to "maximize the value of the company."

"We welcome feedback from our shareholders and welcome their insight," a Sun spokeswoman said Wednesday. Neither Sun nor Southeastern Asset Management would elaborate on what was discussed at the meetings. Southeastern Asset Management, based in Memphis, Tennessee, does not focus exclusively on technology stocks, but it has also invested in Dell, Symantec and Level 3 Communications.

In recent years Sun has emphasized the strategic role software plays for the company, switching its stock symbol from SUNW to JAVA last year, and placing more marketing dollars in its Solaris operating system. "We are no longer simply a workstation company," Schwartz wrote in a blog post explaining the ticker symbol change.

Earlier this year Sun spent US$1 billion to pick up open-source database vendor MySQL; however, moves like the acquisition haven't helped Sun's stock price. It has plunged from nearly $25 per share a year ago to a close of $4.72 on Wednesday. Schwartz, who ascended to CEO from the ranks of Sun's software division, has said he sees the company as a "systems" vendor that sells both hardware and software.

Asked recently if Sun would consider selling the company's hardware business to focus exclusively on software, Schwartz said it made more sense to continue as a systems vendor, but he did appear open to this possibility. “We are always thinking about being more creative on behalf of our shareholders,” Schwartz told the New York Times. “We want to drive maximum value for them.”

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Robert McMillan

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